ANALYSIS OF BLUE OCEAN STRATEGY AND ITS IMPLICATIONS
MODULE:STRATEGIC INFORMATION MANAGEMENT
DATE:19TH APRIL, 2012
SCHOOL:LONDON SCHOOL OF COMMERCE
LONDON, UNITED KINGDOM
Table of Contents
Definition of Blue Ocean Strategy4
Major Differences Between Blue Ocean and Red Ocean7
The Four Actions Framework10
The Four Actions Framework In Practice10
The ERRC Grid10
The author carried out this research in order to help the reader understand what a Blue Ocean Strategy (BOS) is and what implications it has on performance of businesses. The report starts with the concept of blue oceans and red oceans in trying to define the BOS. It goes on to look at the different frameworks employed when implementing BOS in the search of blue waters and also provides practical examples of companies which have created uncontested market space and new demand. The final chapter concludes the report and offers some recommendations.
DEFINITION OF BLUE OCEAN STRATEGY
In order to define blue ocean strategy (BOS), it is important to understand first what blue oceans are and what a strategy is. To understand blue oceans, consider a market universe made up of two kinds of oceans: one red and another blue. The red oceans indicate all the industries that are well known of today i.e. known market space. On the other hand, blue oceans indicates all the industries that we do not know of today, those that do not exist i.e. unknown market space. In the red oceans, as the market space is known, the boundaries are identifiable and accepted, and the rules of competition are also known. Therefore, companies work harder to perform better than their competitors and win a greater share of the current demand. This means the market space becomes overcrowded and visions for profits and growth tumble down. Products become commodities, and cutthroat competition turns the read ocean bloody (Kim and Mauborgne, page 4).
On the other hand, blue oceans are defined by unknown market space, pure and untapped, creating demand, and high prospects of profitable growth. Blue oceans can be created far beyond the boundaries of current industries, but mostly they are created from the red oceans by expanding these red oceans boundaries as, Safaricom [M-PESA] did – a case study this report will look at on later. Therefore, in blue oceans, competition becomes irrelevant because there are no rules of competition and the rules are waiting to be set. A strategy can be defined as the direction and scope of an organisation over the long term, which advantage for the organisation through its configuration of resources within a changing environment, to meet the needs of markets and fulfil stakeholder expectations (Johnson and Scholes). The strategy will encompass risk and opportunity always regardless of whether it is in red or blue waters.
A blue ocean strategy is therefore, the moves that companies apply to deliver goods and services that will create and capture new market space, with a significant leap in demand and achieve a high performance. For a blue ocean strategy to be successful, it requires analytical tools and framework that will help management implement the blue ocean strategy, but currently the playing field is biased towards analytical tools and framework to succeed in red oceans. If, therefore, it remains as it is, then red oceans will remain on top of company's strategic agenda regardless of increasing necessity for creating blue oceans. Perhaps this explains why, despite prior calls for companies to go beyond existing industry space, companies have yet to act seriously on these recommendations (California...